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Can EU’s Efforts Protect European Companies Dealing With Iran?

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Following the re-imposition of United States’ sanctions against Iran on August 7, the US has been adamant to exert its utmost pressures on Tehran to enter comprehensive negotiations with Washington, while the EU has been following measures to salvage the Iran nuclear deal US pulled out of in May.

Europe has promised to compensate possible losses incurred by European companies working with Iran in case they are affected by the United States’ sanctions. But how effective EU’s measures are likely to be?

Hours after renewed U.S. sanction were implemented U.S. President Donald Trump once again threatened European companies to leave the Iranian market to avoid the sanctions.

One consequence of Trump’s threat was that German auto giant Daimler halted its business activities in Iran hours after Trump vowed to block any company operating in Iran from selling in the vast U.S. marketplace.

“We have suspended our already limited activities in Iran in accordance with the applicable sanctions,” a Daimler spokeswoman said on August 7.

Many European companies stopped their activities in Iran during the weeks before the implementation of renewed sanctions.

Iranian economic expert in Europe, Mehrdad Emadi told Iranians Global Network in an interview that at least nine European companies and institutions decided to suspend their activities in Iran in early August.

On August 7 the EU announced that “As the first batch of re-imposed US sanctions on Iran takes effect, the EU’s updated Blocking Statute enters into force on 7 August to mitigate their impact on the interests of EU companies doing legitimate business in Iran.”

“The updated Blocking Statute is part of the European Union’s support for the continued full and effective implementation of the Joint Comprehensive Plan of Action (JCPOA) – the Iran nuclear deal, including by sustaining trade and economic relations between the EU and Iran, which were normalised when nuclear-related sanctions were lifted as a result of the JCPOA,” the EU statement added.

While the EU vowed to provide funds for any fines European companies might incur, Emadi says, “Currently EU’s compensation fund is around 14 billion Euros. That is enough for paying the penalty for three or four cases, and then the fund will run out,” Emadi further elaborated.

However, developments such as Daimler halting its operations in Iran, show that although European governments might be willing to salvage the JCPOA regardless of the US pull-out, businesses would priorities their interests and prefer bigger interests in the US market over smaller gains in the Iran.

Previously French car maker Renault stopped its operation in Iran to save the interests of its Japanese partner Nissan in the United States, although Renault is not operating in US market.

Emadi said elsewhere in his interview with Iranians Global Network, “European businesses know that the US Treasury’s actions may not be legally justifiable, but they are worried because they believe it is the world’s largest economy that is telling them they would be punished if they continue business with Iran.”

Emadi’s forecast was that more European companies would be leaving Iran during the week after the re-imposition of US sanctions.

“The understanding in Iran of the world economy is at the level of dealership and goods smuggling. They have little understanding of how the global economy works,” Emadi said.

He added that while the economy in the United States has one single executive system, there are 27 different systems in Europe. Although the UK and Germany and to some extent France want to defend Iran against US sanctions, there are other Europeans states such as Spain which are not interested in working with Iran.”

On the other hand, many European governments are worried about the fact that Iran’s record in the areas of transparency and fighting money laundering has worsened and at the same time, the presence of Iran’s security-military circles in the economy has increased. As a result, when EU foreign policy chief Mugherini or others say they would defend Iran against sanctions, this does not mean that other European officials would also do so, Emadi told Iranians Global Network.

Subsequently, and in the absence of Iran’s official commitment to international conventions about transparency and confronting economic support for terrorism, Iran’s reliance on Europe appears to be more optimistic and less realistic.

The United States is using penalties as its tool to enforce renewed sanctions, while Europe is relying on compensation as its tool in defending Iran, but Europe is not likely to have the financial resources to further its policy, Emadi noted.